RTE: "Why are deposits growing when the rate of return is so low?"

Brendan Burgess

Brendan Burgess

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Why are deposits growing when the return is so low?

We don't need reminding that interest rates are rising. While mortgage rates have not risen to match the pace of increase at the ECB level, the banks continue to offer very low returns on deposits. The situation is gradually improving but inflation is eroding our very significant deposit base.
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But despite the onset of a cost-of-living crisis, which has seen thousands pinned to the collar, there are those who continue to put money aside - in quite significant quantities - despite the banks offering us meagre returns.

How much?

Nearly €8 billion in the year to April, according to Central Bank figures published this week, including over €830 million in the month of April itself.

That takes the total amount on deposit by households in Ireland to in excess of €150 billion.

According to a recently published report from the Central Statistics Office, households saved approximately 20% of their disposable income in the final three months of last year.

...
Why such meagre returns?

To put it bluntly, why would they bother when we're cramming banks accounts with our excess cash as it is.

They don't have to incentivise us.
 
Brendan Burgess said:
To put it bluntly, why would they bother when we're cramming banks accounts with our excess cash as it is.
Click to expand...

Yeah, one the reasons for very poor deposit returns, from the 3 Irish banks, is they have little incentive to attract because of excess deposits. Plus the banking levy is weighted around DIRT receipts, so less interest paid means lower levy, as crazy as that sounds.

But the more complacent Irish banks become the more people will move deposits to online/European banks.
 
No ISAs in Ireland like UK, punitive ETF taxation, Ireland has a very investor unfriendly taxation regime therefore money is left on deposit by default. Also the narrative of the collapse of bank shares during financial crash and eircom shares before that has left a legacy that shares are very risky,
 
I get the "need the money to lend" (but thought EU banks were all awash with cash, not just Ireland), and if it's to earn money on deposit at ECB, well the Irish banks are doing that nicely without offering the rates. The question is, why is Ireland seemingly an outlier...
 
I am personally much happier with mortgage rates below the EU average than deposit rates and hope it stays like this :)


It’s the best of both worlds for an Irish consumer - we can put deposits with foreign banks but can’t get a mortgage from them.
 
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